How the News Industry Is Adapting to a Digital World

While the past decade has been a dark one for the news business -- specifically print newspaper companies -- 2013 may be the year when the industry turned the corner. Not only did two major local newspapers find new billionaire owners willing to invest in their long-term viability, but the expansion of real reporting driven by digital players was significant.

Yes, 2013 included continued trouble for many newspapers and early 2014 contained the end of AOL's Patch local news experiment, but it also featured a huge explosion in digital journalism. This was a year when Buzzfeed moved beyond its strategy that relied on tricking visitors into clicking on articles based on catchy headlines by hiring Pulitzer Prize-winner Mark Schoofs. Mashable grew its staff of journalists to 70 with former assistant managing editor Jim Roberts as chief content officer. 2013 also saw Nate Silver leave the Times to join Disney's ESPN to relaunch his data reporting site fivethirtyeight.com as a stand-alone -- and well-staffed -- entity and Ezra Klein left the Washington Post for Vox Media.

The end of the year also saw veteran technology journalists Kara Swisher and Walt Mossberg break away from News Corp to launch Re/Code, a well-funded successor to their All Things D brand with investments from Comcast's NBC Universal News Group and Windsor Media, an investment firm run by Terry Semel, the former CEO of Yahoo! and Time Warner's Warner Brothers.

Last year also saw Amazon CEO Jeff Bezos and Boston Red Sox owner John Henry buy The Washington Post and The Boston Globe, respectively, with both serving as somewhat hands-on owners committing to developing business models that support quality journalism.

On top of all that, Pew Research has made a strong case that news is not dead -- no matter how many times the industry has reported its own pending demise -- in its State of the News Industry 2014 report.

There are more jobs but fewer people reporting the newsFor the first time Pew's annual survey looked at how many jobs have been created in news by digital outlets and found that there are now roughly 5,000 full-time professional jobs at nearly 500 digital news outlets, most of which were created in the past half dozen years. That's good news for news professionals but maybe not great news for the public as an awful lot of those jobs involve curating news from other outlets, not creating it.

The vast majority of bodies that produce original reporting still come from the newspaper industry, Pew reports, and those newspaper jobs are far from secure. Full-time professional newsroom employment declined another 6.4% in 2012 with more losses expected for 2013. Gannett alone is estimated to have cut 400 newspaper jobs while the Tribune Co. announced 700 cuts (not all of them in the newsroom).

That is not to say that all of the digital companies are simply taking news and repackaging it -- all the ventures mentioned above are creating high-quality content -- but if newspapers fail then the pool of content for websites to aggregate will get smaller.

Where we get news from is changingThe days when consuming news meant reading newspapers have long since passed and today much news consumption occurs unintentionally.

Half of Facebook users get news there even though they did not go there looking for it, according to Pew. The Facebook users who get news there at the highest rates are 18-to-29-year-olds. "The same is true for the growth area of online video. Half of those who watch some kind of online video watch news videos. Again, young people constitute the greatest portion of these viewers," the survey reported.

In general, online sources of news -- both aggregate and original reporting -- are exploding but ad dollars have not caught up. According to Pew only $500 million to $750 million in ad dollars go to for-profit digital companies (ones that are not tied to print brands). That's a small piece of the pie compared to the $25 billion spent on daily newspapers, the $2.7 billion spent on weekly newspapers, and the $1.7 billion spent on radio news/talk.

Online outlets and news sources are growing at explosive rates but at some point those companies will face the same problems newspapers are struggling with as their businesses become more and more digital. How do you replace print ad dollars with digital spending at a level high enough to sustain quality journalism?

How the news industry makes money has not really changedThe news industry in the U.S. brings in a little over $60 billion of revenue annually, according to estimates in the Pew report. According to the report:

Advertising, at least for now, accounts for roughly two-thirds of this pie, most of which remains tied to legacy forms. Audience revenue accounts for about a quarter and is growing both in total dollars and in share. But this revenue may also be coming from a smaller—or at least flat—pool of contributors.

New kinds of earned revenue streams like event hosting and web consulting account for about 7%, while investment from sources such as venture capital and philanthropy amount to only about 1% of the total.

The problem for newspapers is that advertising has remained the largest source of revenue and the dollars spent on ads has fallen steadily. Daily newspaper advertising -- print and digital combined -- represents 58% of the advertising revenue tied to journalism, about $25.2 billion, according to the Newspaper Association of America (2012 figures). That's down from the industry's peak in 2005 when $49 billion in ad dollars came in for the industry (which was 82% of total newspaper revenue).

The news is still big businessWhile the revenue trend has been decidedly down, the fact that there is significant investment in quality journalism and smart people including Bezos and Henry who are trying to figure out how to make money (maybe not a lot of it, but money nonetheless) are positive signs. There are others that can be pulled from the Pew report.

Investment in global coverage has been strong from a number of digital companies. Vice Media has 35 abroad bureaus; The Huffington Post hopes to grow to 15 countries from 11 this year; BuzzFeed hired a foreign editor to oversee its expansion into places like Mumbai, Mexico City, Berlin, and Tokyo. Those are only a few examples of the many digital outlets picking up the slack for the newspaper industry, which has slashed the amount of international reporters working for U.S. newspapers by 24% from 2003 to 2010, according to Pew (and the trend has likely continued since then).

Social media is creating new ways to expose people to news. Survey data released here shows that 50% of social network users share or repost news stories, images, or videos while 46% discuss news issues or events on social network sites.

Ad revenue tied to digital videos overall (no firm calculates a figure specifically for news videos) grew 44% from 2012 to 2013 and is expected to continue to increase.

The news industry -- specifically the print media that's struggling to transition from a dying business model to a digital one that has yet to show it can replace print revenues -- still faces massive challenges. While there are hopeful signs and encouraging developments that suggest that the news industry is transitioning to a new model, successful results have been elusive and the vast majority of the digital-only sites are more about promise than profits.

Before the news industry can turn the corner and be declared, if not healthy, at least off death watch, it needs to figure out a business model (likely more than one) that not only allows for the creation of high-quality content, but finds a way to pay for it that does not involve benevolent billionaires. That seems more possible now than in recent years because so many smart people are working on the problem. Additionally, the public has validated that while how it consumes news has changed, its need for news has not gone away.

Are you ready to profit from this $14.4 trillion revolution?Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Facebook, Walt Disney, and Yahoo. The Motley Fool owns shares of Amazon.com, Facebook, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.